As an investor, you may already have a financial portfolio that is brimming with stocks and bonds. Take it further and amplify your returns within a few years by investing in real estate.
Start with our guide to make an informed transition to real estate investment.
A popular topic in today’s real estate market is how to become a real estate investor. Seeing others making money through buying and selling real estate and gaining successful investments leaves the rest of us interested getting started now — while the market is still hot. Luckily, pretty much anyone can become a real estate investor. If you first invest some time into learning, there are several paths to take and opportunities available.
Who Can Become a Real Estate Investor?
The good news is anyone can become a real estate investor. All you need is a little ambition and a good understanding of your options. There truly is a level of entry for any interested investors.
Is it your first investment and you don’t have a lot of cash? Maybe start by investing in a crowdfunding campaign. The amounts to invest in crowdfunding campaigns range, and you can get involved in some pretty big projects for not a lot of cash.
Have a decent amount to invest? Purchase a rental property and start bringing in rental income. Or maybe you already have a great investment strategy but want to expand? Investing in commercial real estate could be your next step. It’s all about doing your due diligence, networking and, eventually, growing your real estate portfolio.
What Is Your Real Estate Investment Budget?
Each investor needs to calculate a budget for themselves. As with any investment or even daily spending, you need a budget. You need to decide how much you want to spend and compare that to the options you have. Where is the money coming from? How much can you comfortably invest to get started? Future investments can always come from the profits of your first investment, but you need to start somewhere.
Do you have savings that you are looking to invest? Take that money and figure out what investment strategy works best for you and your long- and short-term plans. Are you still saving? Check out your options. Know your local real estate market, and explore other options and platforms online to get an idea of what percentage of your income is a reasonable amount to invest. In general, many investors keep aside 15% of their pre-tax income to invest in various opportunities. Just be aware that the amount of cash you need to get started will range depending on what type of investment you are interested in.
Should You Invest in Residential or Commercial Real Estate?
Both residential and commercial real estate can be challenging to get started in, but both are also great ways to build a foundation for real estate investing. Investing in both areas of real estate also helps to diversify your portfolio. If you are serious about investing in either type of real estate, you need to first understand the advantages and disadvantages of each.
Advantages of Residential Real Estate
- Cashflow: The main attraction for rental properties is the cash flow. If you’ve found a great property in a great area for a great price, renting it out for a decent amount should be easy. As long as the rent covers your monthly bills on the property and then some, you will develop a nice stream of passive income.
- Appreciation: Residential real estate tends to appreciate over time, as much as 3.5% or more per year. So, just by owning a piece of property, the value should continue to grow over the length of your ownership.
- Leverage: Property value increases, and equity in properties you already own can work as leverage to purchase more investments. Owning even one successful property can be used as leverage when looking to purchase another property.
- Control: Unlike some investment options, residential real estate allows you full control. You have the control to purchase any property you like, in any neighborhood, for the price you decide on. You also have control over how to use and maintain that property for optimal growth and profit.
Drawbacks of Residential Real Estate
- Liquidity: While it is amazing to own property and have the leverage and control, owning real estate does not have the same liquidity as stocks where you can just cash out if you need to. With real estate, you need some time to sell — and in the right market for the best profit. This can take months or even years in certain situations.
- Maintenance: As the owner of a residential property, you are responsible for repairs and maintenance. That means if there is a structural problem, major system failures or a new roof needed, these general repairs can eat into your profits. And if you do not maintain your property, it will be much harder to sell or rent.
- Vacancies: If you own a rental property, you need to really make sure you purchased in the right spot. The only way you are making money on this investment is with tenants to pay you rent. If your rental is vacant, you are still paying the mortgage and taxes each month until you find a suitable tenant. This is coming out of your pocket. Not to mention nightmare tenants who default or trash the house.
Advantages of Commercial Real Estate
- Options: In addition to the same advantages of investing in residential real estate (though on a much larger scale), commercial real estate also offers you a myriad of options. You can invest in multifamily buildings, office space, industrial property, hotels and even retail stores. Investing in commercial real estate is a great way to explore your options and invest in what suits you best.
- Secure investment: Commercial real estate is a solid investment because the actual land and the structure hold a lot of value in the right location. In addition to a great lease, this can be a secure investment for many years. Unlike residential real estate leases that typically last for 1 year, commercial leases are much longer at 5 to 10 years — usually with annual price increases built right in. The types of leases are also more attractive to investors, as you can get into a triple-net lease with almost zero expenses being the responsibility of the landlord.
Drawbacks of Commercial Real Estate
- Economic conditions: In addition to the same disadvantages as residential real estate, commercial real estate is also more prone to economic conditions. The demand for in-person office space, retail stores and hotel stays can decrease, as it did during the COVID-19 pandemic. Commercial real estate fluctuates greatly with economic conditions and is a major concern for commercial landlords. People will always need a place to live — more than convenient goods and services.
- Upfront capital: The upfront capital needed to invest in commercial space can make it next to impossible for some investors. Banks and lenders commonly see commercial real estate as high risk and require a 30% to 40% down payment in order to purchase. This is a hefty price tag that is out of reach for many interested investors.
Do You Need To Buy Property?
To become a real estate investor, you do not need to buy actual property. There are other options such as crowdfunding and real estate investment trusts (REITs), which allow you to invest instead in a company or project.
Real Estate Investment Trusts
REITs are companies that already own and operate income-producing properties. By investing in a REIT, you invest in the company that generates the income. It’s more of a passive investment where you really don’t have to own or maintain the actual property. The REIT pays out at least 90% of its profits quarterly as dividends to its investors. So, you are involved in and making money from real estate, but you do not have control over what projects or buildings you are investing in.
Real Estate Crowdfunding
Investing in crowdfunding is an option for any investor. Various amounts of money are raised by individual investors interested in backing a real estate project or venture. The money that is raised is then put into the project. Depending on your investment, you may earn a lump sum payment or a passive income from a successful project. Although there is, of course, risk associated with any investment, it’s a great way to diversify your portfolio.
Benzinga’s Best Real Estate Investment Platforms
Benzinga has you covered with the best real estate investment platforms to check out for the best chance at success. Whether you are an entry-level or a seasoned investor, take a look at these platforms to get started or further diversify your portfolio.
- securely through Nada / Cityfunds's websiteBest For:Accredited and Non Accredited InvestorsRating:
With so many great real estate investment options out there, it’s difficult to pinpoint which is best for you. Benzinga is here to explain investment opportunities and allow you to do your research and gain your knowledge all in one place. Make sure you keep coming back here for more financial and investment information for each phase of your investment journey.
Frequently Asked Questions
How much money can you make as a real estate investor?
The sky is truly the limit. It depends solely upon you and how far you take it. Begin with one investment and keep going from there. Treat it as a business and make smart choices. You could end up broke or you could end up a billionaire. It’s entirely up to you.
Is it hard to get into real estate investing?
It can seem challenging to get into real estate investing, but really anyone can get started with minimal money in hand. Benzinga is here to show you the opportunities and how to get started. It’s up to you to take that first step toward a prosperous future.
Accelerate Your Wealth
Arrived Homes allows retail investors to buy shares of individual rental properties for as little as $100. Arrived Homes acquires properties in some of the fastest-growing rental markets in the country, then sells shares to individual investors who simply collect passive income while waiting for the property to appreciate in value over 5 to 7 years. When the time is right, Arrived Homes sells the property so investors can cash in on the equity they've gained over time. Offerings are available to non-accredited investors. Sign up for an account on Arrived Homes to browse available properties and add real estate to your portfolio today.